In our prior post on the case of Pot-O-Gold Rentals, LLC v. City of Baton Rouge, we noted that we were hoping the Louisiana Supreme Court would hear this case in order to “clean up the mess” regarding the reach of the Louisiana lease tax and the scope of taxable “gross proceeds” (a term which is currently undefined by the Louisiana legislature). Well… we now have our answer. And it’s a good one!
On January 16, 2015, in a relatively unusual move, the Louisiana Supreme Court simultaneously (1) granted the taxpayer Pot-O-Gold’s writ application, (2) reversed the holding of the First Circuit Court of Appeal that was in favor of the tax collector, and (3) reinstated the judgment of the trial court in favor of Pot-O-Gold. The Court did all of this in one fell swoop, with no additional briefing by the parties and no oral argument at the state’s highest court.
[I]t is nice to see the Louisiana Supreme Court step in and stem what has been perceived by many as a bloated and ever-expanding definition of “gross proceeds.”
In this case, the taxpayer, Pot-O-Gold, (1) leased portable toilets, (2) provided cleaning and sanitation services for the rented toilets, and also (3) provided sanitation services for other toilets not owned by Pot-O-Gold. When renting the toilets, customers were able to choose to reject the sanitation service option by Pot-O-Gold. In addition, there were several other third-party providers available for such sanitation service.
As explained in detail in our prior post, in September of 2014, the First Circuit held that Pot-O-Gold’s waste removal services were taxable as part of the “gross proceeds” of the lease of portable toilets. In doing so, the First Circuit seemed to stretch the reach of the Louisiana lease tax by broadening the scope of “gross proceeds,” thereby creating a legitimate circuit split in Louisiana as to just how “gross” the reach of “gross proceeds” should be.
The First Circuit ultimately found an “inexorable intertwined relationship between the services and the leased property,” and therefore found that the separate service charges were not non-taxable services, but rather should be included as part of the taxable gross proceeds of the leases of the toilets. The court looked to what it called the “totality of the circumstances,” and reasoned that the “true object” of the transactions at issue was the lease of toilets.
The Louisiana Supreme Court, however, disagreed.
Siding with and adopting the reasoning of the trial court and the appellate court dissent, the Louisiana Supreme Court properly explained:
Taxing statutes are to be interpreted liberally in favor of the taxpayer and against the taxing authority. If the statute can reasonably be interpreted more than one way, the interpretation less onerous to the taxpayer is to be adopted.… [W]e agree with the appellate dissent that it is just as reasonable to find that the true object of the portable toilet transactions is the removal of human waste[.] … As such, we find that the “true object” of the transactions is, in the least, debatable, requiring the court to adopt the interpretation urged by the appellant as the least onerous to the taxpayer.
The Court also noted:
[T]o hold that providing cleaning services for portable toilets is not a taxable event if the toilet is owned by someone else, but is a taxable service if the toilet is owned by the lessor, creates an absurd result.
The Court instead agreed with the trial court’s conclusion that the “non-taxable services remained non-taxable regardless whether the services were performed for rental customers in conjunction with a rental.”
As part of its ruling, the Louisiana Supreme Court also addressed the “inconsistency” of the Louisiana Department of Revenue’s previously published Revenue Rulings on this gross proceeds issue. Specifically, the Court could not discern how Rev. Rul. 06-012 could opine that neither rentals of waste dumpsters nor waste hauling services are taxable, while Rev. Rul. 06-013 could somehow opine that both rentals of portable toilets and waste removal/cleaning services are taxable, noting that “[i]t is difficult to determine why one situation is treated differently than the other[.]”
The lone dissent of Justice Weimer can be found here.
This tax practitioner personally feels it is nice to see the Louisiana Supreme Court step in and stem what has been perceived by many as a bloated and ever-expanding definition of “gross proceeds.” It will be interesting to see how the Court’s opinion in Pot-O-Gold, which is the Court’s first real statement on this issue, ultimately steers future jurisprudence through the murky waters of Louisiana lease tax law.
We will be sure to update you on any new developments on this topic as they occur.